[IMGW]http://media.1up.com/media?id=3328706[/IMGW]Much of the 'net -- 1UP included -- jumped the gun over Take-Two Interactive's reveal that Microsoft had handed $50 million over for the rights to exclusive episodic http://www.1up.com/do/gameOverview?cId=3150593 content for Xbox 360. Rather, the money is better understood as an advance
, not unlike what an author, musician or software company would receive before the release of a product. The higher the sales expectations for the product, the higher the advance; the company expects they'll make back their investment.
The confusion comes from the term "deferred revenue," initially mentioned in the Take-Two http://seekingalpha.com/article/38017 during a Q&A session by Evan Wilson of Pacific Crest Securities, in regards to Microsoft's advance. Time for a little Econ 101.
"deferred revenue: Revenue that is considered a liability until it becomes relevant to the business at hand, such as a payment received for work that has not yet been performed" -- http://www.investorwords.com/1368/deferred_revenue.html
Take-Two has not yet delivered the episodic content -- it's simply been promised. "[deferred revenue] doesn't get recorded as straight revenue because, if something goes wrong with the job, the money is at risk," reads http://www.investopedia.com/terms/d/deferredrevenue.asp. Consequently, if GTA IV were to unexpectedly bomb at retail and the episodic content subsequently sold terribly, as well, Take-Two would potentially have to "refund" Microsoft. This is not an uncommon practice within the videogames industry in the developer/publisher relationship.
Whether this is what ultimately swayed the publisher to keep the content on Xbox 360 exclusively, we don't know, but Take-Two hasn't exactly been floating in a sea of money http://www.1up.com/do/newsStory?cId=3160245. Speaking to http://www.next-gen.biz/index.php?option=com_content&task=view&id=6023&Itemid=2, Microsoft said it "does not comment on business arrangements with our partners," and Take-Two denied a further explanation to http://www.gamesindustry.biz/content_page.php?aid=25903. For now, everyone's keeping their mouths shut.
Thanks to http://feeds.feedburner.com/~r/1up/ALLPS3/content/~3/126205941/newsStory for sharing the news with us!